CEO Q&A: Jon Turner shares his views on the drivers, demands and developments in the MGA Market

Published On : 28 Nov 2018

This month Pen Underwriting CEO Jon Turner was interviewed by Gary Pike, Managing Director of Right International — a leading executive search company in the MGA market — about key issues and challenges in the ever-competitive MGA market, and why he was attracted into it. Here you can read their full unabridged exchange.

“Having spent 25 years on the carrier side in the Lloyd’s & London (re)insurance market, I was at a juncture in my career where I wanted to do something different, get to grips with an alternative segment and develop new skills. At the time, MGAs were also the ‘new black’, so that was an attraction.

“But Pen Underwriting itself was also a big part of that attraction. Its vision was to create not just a large multi-class MGA but a virtual insurer, able to provide all the services of a traditional carrier —from sales, distribution, pricing and product innovation through to claims, analytics and governance —except carry risk. That ability to do a real work transfer for our partners, to add genuine value to the insurance food chain, was very appealing.”

IN MAKING THAT TRANSITION, DID ANYTHING SURPRISE YOU?

“Not enormously — MGAs face the same challenges as the carrier side but view them through a different lens. Underwriting profit, retention ratio, loss ratio performance, distribution…..all those elements were very familiar to me.

“The only real surprise was a pleasant one; within an MGA the success or failure of a new venture or class quickly becomes apparent. So the speed at being able to determine whether your performance is going in the right direction also enables you to make appropriate decisions quickly and implement any changes necessary. On the carrier side, those things tend to play out over much longer timeframes because of their scale. Within a carrier, the running costs of that business and loss ratio take time to manifest, so in general terms you’re less able to be as responsive as perhaps you’d like to be.”

HOW DOES WORKING IN AN MGA ENVIRONMENT DIFFER FROM ANY OTHER TYPE OF INSURANCE BUSINESS?

“For underwriters, it offers a much more rounded requirement in my view, demanding a more diversified skillset. Underwriters at a big, long-established carrier that are used to business coming in because of the name above the front door will not necessarily find the transfer to an MGA easy. You don’t just need to be a first-class underwriter at an MGA; you also have to be energetic, entrepreneurial, good at business development and good at distribution — all while keeping an extremely close eye on your loss ratio.”

WHAT DOES IT TAKE TO GROW A PROFITABLE AND SUSTAINABLE MGA BUSINESS?

“First and foremost you’ve obviously got to hit your loss ratios. As I’ve said before, there are very few places to hide at an MGA; that balance between your revenue and your expenses becomes pretty clear, pretty quickly. So the pressure to be consistently profitable is substantial.

“With the intense focus now trained on underwriting profitability in the Lloyd’s market, capacity is coming under even greater pressure. If you lose your capacity, it’s very hard to replace. And the simple fact is, an MGA without capacity is an MGA that’s out of business.

“To be sustainable, therefore, our over-riding focus is all about making sure Pen is easy to do business with. Fundamentally, brokers like something that’s straightforward to trade with. If it’s too difficult, they won’t come back no matter how good your product range.

"People sometimes forget that Pen Underwriting only came together as a business four years ago, when we had to blend and integrate a dozen cultures and ways of doing business into a single brand, and a single entity, with a consistent underwriting philosophy and unified operating systems. None of that was without its challenges but it was essential to tackle in order to create a profitable and sustainable business.”

WHAT DO YOU SEE AS THE BIGGEST OPPORTUNITY IN THE MARKET?

“The effective application of good technology: enabling MGAs to bring solutions to market quicker, slicker and cheaper. You’ve either got to have it, or invest heavily in it without delay. That way the team can focus on business development and getting opportunities in the top of the funnel.”

IN MAY, PEN ANNOUNCED AN L&G-LED CAPACITY DEAL SUPPORTING £550M GWP FOR UK HOUSEHOLD AND SME OVER FIVE YEARS. DOES THAT MEAN PEN IS MOVING TO JUST A HANDFUL OF CAPACITY PROVIDERS OR ARE YOU ALWAYS ON THE LOOKOUT FOR NEW CAPACITY?

“Over the past couple of years, Pen has worked hard to strategically consolidate a large, disparate number of capacity providers and binding authorities — an inevitable legacy of integrating a dozen or so businesses — and we’re not finished yet. We still work with a large number of both Lloyd’s syndicates and insurance companies, however, and there’s a good balance in terms of spread.

“But there will be opportunities for new carriers to come in and work with Pen — you can never be averse to new capacity because underwriting appetites can change quickly or over time. You only have to look at the noise being created in Lloyd’s with the renewed focus on underwriting profitability and expense ratios. So at Pen we recognise that we have to continue to add real value into the equation, if we’re taking a slice of the action, to keep that capacity secure.”

WHAT DO YOU SEE AS THE BIGGEST MARKET OPPORTUNITY?

“The most obvious answer is the wider adoption of technology across the commercial insurance sector - an investment we all need to make to prevent that opportunity becoming a risk. There are certainly lots of challenges right now, and any MGA that tells you it’s easy out there would be either deluded or lying.

“Managing a large number of capacity providers, all of whom have their own underwriting philosophies, often requires serious plate-spinning. So you need to best utilise technology in order to be both prepared - and able - to change your strategy as the market and appetites shift.”

WHAT IS THE GREATEST CHALLENGE?

“At this point, it’s all about managing changing carrier appetites and maintaining positive momentum in building the business.”

PEN DESCRIBES ITSELF AS A VIRTUAL INSURER, ARE YOU UNIQUE IN THAT RESPECT?

“While we don’t claim to be unique, it’s undoubtedly true that you need to be a certain size to even consider doing what we do. You’ve got to invest in your people, your systems and your structure with all the necessary governance and controls required to operate as a virtual insurer.

“But at Pen we can legitimately turn around and say to our insurer partners —you don’t need to do that, you don’t need to mark our homework. By all means audit us but there’s no need to duplicate functions, processes and work that we are already carrying out in a robust fashion.”

WHAT DOES THE FUTURE HOLD FOR THE MGA MARKET?

“Consolidation: both of capacity provider appetite in certain sectors, and because not all small MGA businesses will prove sustainable. Yes, there may be some great ideas out there and niche plays but with all the regulation and rigour around the market, it will still be a challenge for smaller entities to survive.

“The market is maturing — with I think more scepticism from carriers about the value MGAs are bringing. So you’ve got to demonstrate that continually. A few years ago MGAs were very much in vogue and there was a huge appetite to simply provide paper as an extra distribution mechanism, but much less so now.”

HOW HAS THE MGA MARKET CHANGED AND HOW DO YOU SEE IT CHANGING IN THE FUTURE?

“I predict more consolidation and more regulation. The better businesses will survive — those with good underwriting discipline, good internal governance, providing the right products to the broker community. Those businesses deservedly should survive.”

HOW IMPORTANT IS THE MGAA?

“We’re very supportive of the MGAA as a trade body and professional association. Jonathan Skinner, Pen’s Capacity Director, sits on the MGAA board as a director. It’s a great forum, and a growing one. We see the MGAA as an important body to ensure the voice and views of MGAs are effectively heard.”

WHAT PART WILL TECHNOLOGY PLAY IN THE FUTURE DEVELOPMENT OF MGAS?

“Technology’s role will be huge. Smart investment in the right areas will ensure MGAs can get their products to market quicker, slicker, more easily and more cheaply, all of which will enhance financial performance and sustainability, while delivering multiple benefits for brokers and our end customers.

“We’re witnessing technology gradually moving up the insurance food chain and it’s increasingly a large and fundamental part of how we trade. We’ve invested a lot of money in making Pen Central a user-friendly portal, for example, with an expanding range of products, to ensure it’s a site that brokers actively want to log onto, which is the key. It all comes back to making sure you’re easy to do business with, which is what makes brokers return.”

FROM A RECRUITMENT POINT OF VIEW, WHAT DO YOU FEEL IS THE ATTRACTION OF WORKING IN AN MGA?

“As an underwriter, I believe working within an MGA environment can give you much more scope, responsibility and freedom on how you shape and build your business. Importantly, we don’t dictate but empower our underwriters to do that.

“MGA underwriters don’t just need to be great at evaluating risks and protecting the loss ratio but energetic and entrepreneurial when it comes to business development and distribution. It’s a much more rounded role, in my view, than working as an underwriter for a large carrier.

“There’s also typically a much greater diversity and not a one-size-fits-all approach. And because we’ve invested in Pen as a virtual insurer, with all the support services, it means our underwriters can focus on trading — which is the aspect they most enjoy. So it depends on the type of person — MGAs can be very attractive to those underwriters seeking a more diverse and rounded role.”

WHAT ADVICE WOULD YOU GIVE TO ANYONE LOOKING TO START AN MGA?

“Two things. First, come and talk to Pen. Second, if you’re serious about starting an MGA, go in with your eyes wide open. This business is far from easy and not straightforward. You’re going to need deep pockets. Don’t expect a pot of gold to just materialise after five years. There are some real challenges out there.”